Watts and Lyon are forming a partnership. Watts invests $40,500 and Lyon invests $49,500. The partners agree that Watts will work one-fourth of the total time devoted to the partnership and Lyon will work three-fourths. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to the business; (c) a salary allowance of $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on
Watts and Lyon are forming a partnership. Watts invests $40,500 and Lyon invests $49,500. The partners agree that Watts will work one-fourth of the total time devoted to the partnership and Lyon will work three-fourths. They have discussed the following alternative plans for sharing income and loss: (a) in the ratio of their initial capital investments; (b) in proportion to the time devoted to the business; (c) a salary allowance of $15,000 per year to Lyon and the remaining balance in accordance with the ratio of their initial capital investments; or (d) a salary allowance of $15,000 per year to Lyon, 11% interest on
Chapter20: Corporations And Partnerships
Section: Chapter Questions
Problem 55P
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Concept explainers
Partnership Accounting
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings, admission of a new partner, etc.
Partner Admission and Withdrawal
A partnership is a kind of arrangement between two or more people whereby they agree to manage the business operations and share its profits and losses in an agreed ratio between them. The agreement that is drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, drawings of a partner, etc.
Question
Transcribed Image Text:Watts and Lyon are forming a partnership. Watts invests
$40,500 and Lyon invests $49,500. The partners agree
that Watts will work one-fourth of the total time devoted to
the partnership and Lyon will work three-fourths. They
have discussed the following alternative plans for sharing
income and loss: (a) in the ratio of their initial capital
investments; (b) in proportion to the time devoted to the
business; (c) a salary allowance of $15,000 per year to
Lyon and the remaining balance in accordance with the
ratio of their initial capital investments; or (d) a salary
allowance of $15,000 per year to Lyon, 11% interest on
their initial capital investments, and the remaining balance
shared equally. The partners expect the business to
perform as follows: Year 1, $13,000 net loss; Year 2,
$32,500 net income; and Year 3, $54,167 net income.
Required:
Complete the tables, one for each of the first three years,
by showing how to allocate partnership income or loss to
the partners under each of the four plans being
considered. (Enter all allowances as positive values.
Enter losses and capital deficits, if any, as negative
values. Do not round intermediate calculations. Round
final answer to the nearest whole dollar.)
Complete this question by entering your ans
below.
Year 1
Year 2
Year 3
Complete the tables, one for each of the first three
to allocate partnership income or loss to the partn
four plans being considered.
Year 3
Plan (a)
Watts
Lyon
Net Income (loss)
Balance allocated in proportion to
initial investments
Balance of income (loss)
Shares to the partners
Plan (b)
$
Watts
0
$
Lyon
Transcribed Image Text:considered. (Enter all allowances as positive values.
Enter losses and capital deficits, if any, as negative
values. Do not round intermediate calculations. Round
final answer to the nearest whole dollar.)
Complete this question by entering your ansv
below.
Year 1
Year 2
Year 3
Complete the tables, one for each of the first three
to allocate partnership income or loss to the partne
four plans being considered.
Year 3
Plan (a)
Watts
Lyon
Net Income (loss)
Balance allocated in proportion to
initial investments
Balance of income (loss)
Shares to the partners.
Plan (b)
Net Income (loss)
Balance allocated in proportion to
time devoted
Balance of income (loss)
Shares to the partners
Plan (c)
Net Income (loss)
Salary allowances
Balance of income (loss)
Balance allocated in proportion to
initial investments
Balance of income (loss)
Shares to the partners
Plan (d)
Net Income (loss)
Salary allowances
Balance of income (loss)
Interest allowances
Balance of income (loss)
Balance allocated equally
Balance of income (loss)
Shoron to the portporn
$
$
$
Watts
Watts
Watts
0
0
0
$
$
$
Lyon
Lyon
Lyon
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